Ireland Clarifies Tax Treatment Of Vodafone Share Deal
Jason Gorringe, Tax-News.com, London
21 January, 2014
There will be no chargeable gain on a proposed Vodafone share deal, the Irish Revenue agency has confirmed, meaning that the transaction will not attract capital gains tax (CGT).
Vodafone is to sell its US group – the principal asset of which is its 45 percent stake in Verizon Wireless – to Verizon Communications. It intends to carry out a return of value to shareholders, via a combination of cash and Verizon Consideration Shares.
The method by which this return occurs will determine its tax treatment. Taking so-called "B Shares" (the "Capital Option") would subject the return to CGT treatment, whereas opting for "C Shares" (the "Income Option) would result in income tax treatment.
Revenue says that on the basis of the provisional figures available, Vodafone shareholders who acquired their shares in exchange for Eircom shares in 2001 would not have a CGT liability. The available part of the base cost of Vodafone shares is higher than the likely consideration, meaning that there would be no chargeable gain and therefore no CGT payable on the return of value to former Eircom shareholders.
Ireland's annual CGT exempt amount stands at EUR1,270 (USD1,720). An individual with no other chargeable gains in the year would therefore need to make a gain in excess of EUR1,270 on this part-disposal before any CGT liability would arise. In fact, shareholders could face a loss of EUR928, according to current figures. This amount could then be offset against any other chargeable gains, or, if unused, be carried forward to be offset against chargeable gains in the future.
Where an individual opts for the Income Option, or fails to take any option, they will, from a tax perspective, have received a dividend from Vodafone. Revenue says that this dividend will be taxable in the same way as all previous Vodafone dividends. The amount of the dividend that each individual should declare for income tax purposes is the sum of the cash actually received, and the market value of the Verizon Consideration Share Entitlement taken. It would also be subject to pay-related-social-insurance (PRSI) and the universal social charge (USC)..
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